Dollar Slumps Amid Dwindling Rate Hike Bets, Iran War Fears Rise

The US dollar is holding near multi-month lows against most major currencies due to dwindling expectations of near-term monetary tightening. This shift in sentiment comes as investors reassess their views on a potential interest rate hike by the Federal Reserve, with the CME FedWatch tool now indicating a 35% chance of a rate increase at the September meeting, down from 52.2% last week.

Analysts remain cautious about inflationary pressures, particularly given the ongoing conflict in the Middle East and its impact on global oil prices. The Strait of Hormuz remains effectively shut, stoking concerns about supply shocks. Nohshad Shah, head of EMEA fixed income sales at Citadel Securities, noted that 'inflation has been above target for most of the past five years...leaving the inflation process with little to no breathing room in a world of constant supply shocks.'

The dollar index is trading 0.1% higher at 99.66, despite safe-haven flows crimping some of its losses. The euro has eased away from two-month highs of $1.1614, last fetching $1.1571.